Royal Society echoes Pembina’s warning over oilsands liability

A few weeks ago the highly respected and independent Royal
Society of Canada released a scientific
review of the current environmental and health impacts of the oilsands.

This review was meant to provide a much-needed credible
perspective on the oilsands at a time when government, industry and
environmental groups are losing public trust.

Last fall I co-authored a report, Toxic
Liability, which highlighted the financial risks facing
Albertans from oilsands operators underestimating the costs to clean up their
mines. The report described the lack
of transparency and inadequacy of Alberta's current mine financial security
policy.

Our conservative analysis indicated that Albertans could be on
the hook for a $10 to $15 billion cleanup bill because both industry and
Alberta Environment are seriously underestimating the cost of reclamation.

Interestingly, the first major finding of the Royal Society
report states that "current practices for obtaining financial security for
reclamation liability leave Albertans vulnerable to major financial risks."

Now and again, it's nice to have a major scientific body reinforce our analysis.

The report notes that the Energy Resources Conservation
Board's current policy to manage liabilities for in-situ oilsands and
conventional oil and gas operations only captures 0.4 per cent of total deemed
liabilities ($40.9 million of a total $16.4 billion). Based on a Pembina
Institute analysis in Toxic Liability,
Alberta Environment's current policy to manage oilsands mine liability only
captures four per cent of total liabilities. This is comparable to insuring
only four per cent of your vehicle against collision damage, or purchasing home
insurance for just the contents of your garage.

Besides being underinsured, the Royal Society report highlights
the "chronic underestimation" of reclamation costs in Canada's mining industry
also happens in the oilsands. For instance, "future reclamation costs involving
EPLs [end pit lakes — artificial lakes that have toxic tailings covered by freshwater]
are difficult to estimate, given the high level of uncertainty over the costs
and viability of EPLs as remediation and reclamation tools."

End pit lakes have never been proven to be an effective way
to reclaim oilsands tailings, yet the government continues to approve mine plans
that include end pit lakes — only adding to the liabilities facing Albertans.

While the Government of Alberta has identified that it's
working on new
financial security policies for the oilsands, the Royal Society report is skeptical
of any real action to reduce the financial risks borne by Albertans.

"Similar statements have been made by the
provincial government on numerous occasions since the Auditor General first
raised these issues [adequacy of oilsands reclamation security] in 1999 and that, as of the time of writing, the development and
implementation of a new policy in this area had yet to occur," said the report.
The society goes on to chide the Government of Alberta: "Responsible government
management of this issue must be demonstrated better than has been demonstrated
to date."

While Alberta's Environment's response
to the Royal Society report mentions a draft mine financial security program
that is moving through government, this policy has been developed behind closed
doors without any stakeholder input. Alberta Environment Minister Renner has turned down the Pembina Institute's
request to comment on this draft policy.

The Royal Society report also warned about the potential for
oilsands operators to strategically declare bankruptcy to avoid paying
reclamation costs or to declare bankruptcy as a result of external events, such
as a collapse in the price of synthetic crude oil or bitumen or a major leak
from a tailings lake.

Financial security policies should be in place to protect
the public from ever having to pay for reclamation, but right now Albertans
could be left holding the bag for oilsands cleanup costs.

The provincial government has heard our concerns of its
oilsands mismanagement many times, but hopefully hearing similar input from Canada's pre-eminent scientific body will prompt
swifter action. In 2011, we look
forward to working with the Alberta government on developing a rigorous
financial security system for the oilsands.